In my view, Indian people buying gold is not an irrational thing. When the CPI is running as high as 10% one is forced to look for protection against inflation.The fact is the Gold's bull run is about to come to an end. When the Gold prices (in US $ terms) starts going down massively - which will happen as soon as taper is announced - naturally buying of Gold will reduce a bit. Rather than resorting to Capital Control (as Dr Shah explains what this Gold import tax really is) just relying on market could have also yielded the desired result of reduced Gold imports, although a bit later.

Gold prices in US $ terms will be below $1000 by March 2014. That is reduction of 30 percent from the price now.

Why only over/under-invoicing of exports and imports? Even the remittances can be adjusted under hawala. Also, services trade such as software etc. are shady areas. You can bring in/ take out money in the guise of providing some software services and such easily. In fact, over/under invoicing of goods is difficult as customs has a robust all India level database, which it uses for valuation of goods. Services over/under invoicing is easier as the only body that certifies the value is STPI and they are barely staffed/competent to gauge the magnitude of error. However, Gold imports for domestic consumption has almost ceased for the time being, due to some stupid legal interpretations arising out of RBI circular dated August 14, 2013.

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